Darnell v. Zia Tr.

CLIFF W. DARNELL, and MARY B. DARNELL, Plaintiffs, v. ZIA TRUST, INC. and DARRYL W. MILLET, Defendants.

No. 1:21-CV-125

United States District Court, D. New Mexico

January 4, 2022

MEMORANDUM OPINION AND ORDER DENYING DEFENDANT ZIA TRUST, INC.'S MOTION TO DISMISS

WILLIAM P. JOHNSON, CHIEF UNITED STATES DISTRICT JUDGE.

THIS MATTER comes before the Court following Defendant Zia Trust, Inc.'s Motion to Dismiss (Doc. 22) for failure to state a claim. In relevant part, Defendant Zia Trust (“Defendant” or “Zia Trust”) argues that Plaintiffs' three claims are barred by: (1) Defendant's formal acceptance as successor trustee in 2011, (2) the New Mexico Trust Code's statute of limitations, and (3) a lack of causation between Defendant's conduct and Plaintiffs' purported damages. Having reviewed the pleadings and the applicable law, the Court finds that the Motion is not well taken and is, therefore, DENIED.

BACKGROUND^[1]

Four decades ago, Casey and Blair Darnell created a trust (the “Darnell Trust”) for their children: Cliff and Mary Darnell (“Plaintiffs”) and their two siblings. Its purpose was to, first, bequeath real property and business holdings to their children and, second, empower Darnell family members to determine all future uses of the property through a majority vote. What made the Darnell Trust especially valuable was that it held highly coveted land along the Rio Grande River, which by 2009 had generated considerable interest from land developers.

Casey Darnell (“Casey”) died in 2001. Blair Darnell (“Blair”) became incapacitated in early 2010. This event sparked an involuntary conservatorship and guardianship proceeding^[2] for Blair, during which the Second Judicial District Court of New Mexico (the “State District Court”) assumed jurisdiction over the Darnell Trust property and appointed co-Defendant Darryl Millet (“Millet”) as Blair's conservator and trustee of the Darnell Trust.^[3] Later that year, the mounting cost of Blair's caretaking expenses and Millet's unpaid legal fees compelled Millet to file a request to appoint a successor trustee-“someone [he] could work with ” as he stated at the hearing-to obtain a reverse mortgage. In turn, the Court appointed Defendant Zia Trust Inc. (“Zia Trust”) on August 2, 2010. Though the Darnell Trust required any successor trustee to “formally accept the designation or appointment, ” Zia Trust did not file an acceptance of appointment in the conservatorship matter. Ten days later, Zia Trust executed a warranty deed to Millet for “Lot 2” of the Darnell Trust, supposedly without consideration or a justifiable basis. A year later, Zia Trust filed a second deed to correct Blair's name on the deed.

Despite not being a corporate entity, ^[4] Millet succeeded Zia Trust as trustee of the Darnell Trust on February 14, 2011 and again assumed statutory duties to the trust's beneficiaries. In its June 25, 2013 order, the State District Court granted permission for Millet to sell the “irrevocable” Lot 2-B property to a purchaser for $1.545 million and to give the purchaser an option to purchase Lot 2-A (where Blair resided at the time) for its appraised value at the time of sale, exercisable upon Blair's death. After receiving this permission, on October 15, 2013, Darryl Millet sold both Lot 2-A and Lot 2-B to the purchaser for $1, 400, 977 and a life estate for Blair. Plaintiffs allege that the sale was contrary to the June 25, 2013 order because the property sold for more than $150, 000 less than the Court-approved amount and was also $300, 000 less than an offer of which Mr. Millet was aware yet didn't inform the court. Curiously, no one conducted an appraisal for Lot 2-A-a highly valuable tract of property-and it was transferred prior to Blair's death on November 18, 2015 for no consideration whatsoever. Plaintiffs further claim the sale of Lot 2-B violated the express provisions of the Darnell Trust because Lot 2-B was irrevocable trust property. Not much time had passed before the purchaser listed the property for $3.5 million and ultimately sold it to the New Mexico State Game Commission in 2016 for $2.8 million. Finally, even though the Darnell Trust expressly required the trustee to form a “Trust Advisory Committee” comprised of grantor's children and consider their advice, neither Defendant discussed the disposition of the property at any point with Plaintiffs.

An interesting turn of events precipitated the instant action. At some unspecified point, Cliff Darnell initiated a probate matter to finalize and correct matters from Blair's estate that Darryl Millet purportedly failed to perform while trustee. After Cliff Darnell served probate papers on Defendant Zia Trust as one of the parties involved with his mother's estate, Zia Trust through counsel sent a letter to Cliff Darnell on February 15, 2019. Despite the wording of the 2010 court order, the letter stated, Zia Trust had declined to act as successor trustee, never accepted appointment as successor trustee under the Darnell Trust as required by the New Mexico Trust Code, and never administered any property of the Trust. Prior to receiving this letter, Plaintiffs were unaware that Zia Trust never accepted its trustee appointment, and that Zia Trust had transferred the Darnell Trust property without lawful authority-with Millet's full knowledge and complicity. According to Plaintiffs, these alleged facts give rise to their claims of probate fraud, breach of fiduciary duties, and collusion thereby resulting in the filing of the instant diversity suit on February 14, 2021.^[5]

DISCUSSION

Rule 12(b)(6) of the Federal Rules of Civil Procedure provides that a defense of “failure to state a cause of action upon which relief can be granted” may be raised by motion to dismiss. Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, a plaintiff must allege facts that “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint must contain “sufficient factual matter accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). To satisfy the plausibility standard, a plaintiff's allegations must show that defendant's liability is more than a “sheer possibility.” Id. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557) (internal quotations omitted). When applying this standard, the Court must “accept as true all well pleaded factual allegations” and view those allegations “in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010).

Defendant's motion to dismiss has three components. First, Defendant argues that by executing the deed to Millet, it accepted its designation as successor trustee, thereby foreclosing Plaintiffs' claim that Zia Trust acted without lawful authority. Second, Defendant contends that the Uniform Trust Code's five-year statute of limitations bars the instant action. Finally, Defendant asserts a lack of causation between Defendant's conduct and Plaintiffs' purported damages. The Court addresses each argument in turn.

I. Defendant's “formal acceptance” theory does not bar Plaintiffs' claims.

The Court begins its analysis by shining a spotlight on Defendant's interesting contradiction. In early 2019, Zia Trust through counsel sent a letter to Plaintiff Cliff Darnell stating:

I note that Zia Trust, Inc. is not a party to the Estate probate proceedings. Also, despite the wording of that 2010 Court order, Zia Trust, Inc. declined to act as successor Trustee, never accepted appointment as successor Trustee under the Darnell Trust as required by the New Mexico Trust Cod, Sec. 46A-7-701 NMSA, and never took possession of or administered any property of that Trust.

Doc. 20-3. Two years have since passed, and now Zia Trust argues a contrary position. Because Zia Trust formally accepted the 2010 court order appointing it as successor trustee, Zia Trust now argues that the Court must dismiss all claims against Zia Trust based on the allegation that it deeded Darnell Trust property without lawful authority.

The question then becomes: what constitutes proper acceptance as successor trustee? To answer this question, the Court must look to both the New Mexico's Uniform Trust Code (the “UTC”) and the language of the Darnell Trust. First, the UTC provides:

A. Except as otherwise provided in Subsection C of this section, a person designated as trustee accepts the trusteeship:

1. By substantially complying with a method of acceptance provided in the terms of the trust; or 2. If the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by accepting delivery of the trust property, exercising powers or performing duties as trustee or otherwise indicating acceptance of the trusteeship.

NMSA 1978, § 46A-7-701(A) (emphasis added). In conjunction with the provision above, the Darnell Trust states: “[N]o designation or appointment of a corporate Trustee as Successor Trustee shall become effective until the corporate Trustee has formally accepted the designation or appointment.” Art. 12, § 12.6 (emphasis added).

Combining these provisions, the parties disagree on the required method of acceptance. On one hand, Plaintiffs argue that, per § 46A-7-701(A)(1), Zia Trust should have substantially complied with the Darnell Trust language by filing a formal acceptance with the State District Court. Because it refrained from doing so, Zia Trust's subsequent transfer of Darnell Trust property to Millet was...